I keep getting emails from people regarding the much-discussed Simkovic/McIntyre paper, so I thought it would be worth reiterating a few basic points:

(1) S&M’s data indicate that, over the past few decades, the median law graduate has made, post-tax, about $420,000 more over the course of a career than an arguably similar college graduate who does not go on to acquire a graduate or professional degree. (Their figures are discounted to present value, but do not include the cost of acquiring a law degree).

(2) Their calculations are based on what labor economists term a synthetic estimate of work-life earnings. Here’s a simplified version of what that means. Suppose that your survey includes 25-year-old lawyers who make an average of $60,000 per year, 35-year-old lawyers who make an average of $100,000, 50-year-old lawyers who make an average of $150,000 per year, and 65-year-old lawyers who make an average of $100,000. In attempting to extrapolate the return that people going to law school today are going to get from their degrees, a synthetic estimate of work-life earnings assumes that the average career earnings of the people in the survey will be replicated (in real dollars) by the people going to law school now, over the course of their future careers.

(3) There is one very obvious problem with this methodology, which is that it will prove to be accurate only to the extent that the field whose future earning potential is being extrapolated is not undergoing any sort of fundamental change. For example, a synthetic estimate of future work-life earnings for new scriveners in 1870 or budding journalists in 1980 would have ended up generating an extremely inaccurate extrapolation of the value of a future career in those fields for people entering them in those years.

(4) S&M address this problem by assuming it away. They argue – very implausibly in my view – that there is no more reason to believe that the value of a law degree is decreasing or will decrease than there is to believe that it will increase (“One can just as easily list reasons why the value of a law degree will increase.”). The evidence they offer for this is that the earnings premium they observe in their most recent data, which run through 2011, is consistent with the average earnings premium between 1996 and 2011, i.e., the years covered by their study. But this is a weak argument, for several reasons.

First, they have no data at all on earnings for people who have graduated in the last five years, and very little data on anyone who has graduated in the last decade. Beyond this, career earnings for anyone who graduated in the last ten years must be almost completely extrapolated, which is to say that the only way to estimate these earnings is to assume that somebody who graduated from law school in in 2003 or 2013 is going to earn the same premium over the course of his or her career as someone who graduated in 1973. But this, of course, essentially begs the very question at issue – which is the extent to which a law degree is a good investment for someone contemplating getting a law degree now, not in 1973.

Second, S&M claim their data demonstrate that the earnings premium for law degree holders is “cyclical,” rather than manifesting any signs of structural change. What data they do have really show is that the earnings premium has been basically flat between 1996 and 2011, with year to year variations that, given their abruptness, appear to be noise rather than signal (For example, per their data the law degree earnings premium was at its lowest point in 1999 and 2002, but at one of its highest points in 2001).

Third, there are specific reasons to doubt that the overall earnings premium enjoyed over the past 15 years by all people with law degrees (many of these degrees were earned 30 or 40 years ago) is a good guide to the earnings premium, if any, which will be enjoyed by recent graduates and future matriculants.

For one thing, as the authors concede, the number of law graduates produced each year by law schools remains far higher than the number of jobs for lawyers being generated by the American economy. (The BLS estimates that there will be an average of 21,800 new jobs for lawyers over the course of the decade. ABA-accredited law schools are currently graduating more than 46,000 people per year, although after this year that number will decline somewhat). In other words, the oversupply of lawyers gets markedly worse with every passing year. It seems implausible that an increasing level of over-saturation in a labor market will not produce a decline in the relative earnings in that labor market, all other things being equal.

For another, there is no question that the earnings of new law graduates have in fact declined sharply. How sharply? Let’s compare the earnings of new law graduates in 2002 – note that 2002 marks the single worst year for the earnings premium earned by all law degree holders in the authors’ study – with the most recent class for which we have data, 2012 (All figures below are in 2012 dollars):

Median salary for 2002 graduates (53% of all graduates had a reported salary): $73,383

Median salary for 2012 graduates (44.7% of all graduates had a reported salary: $61,250

In other words, reported entry-level salaries for law graduates have declined by 20%, while the real decline is probably larger, given the significantly lower percentage of 2012 graduates who had a reported salary. (I estimate the real median salary for 2012 graduates was in the neighborhood of $45,000).

Furthermore, in the course of this decade, the cost of law school attendance has continued to increase dramatically, with private law school tuition rising by 42% in real terms, and resident tuition at public law schools nearly doubling, again in inflation-adjusted dollars.

In sum:

(1) Over the time period covered by the authors’ study, their data indicate that earnings for all law degree holders have remained flat, while the cost of law school has risen sharply. This means that, per their analysis, the value of a law degree has declined significantly in absolute terms during the time period covered by their study, even if one assumes that recent graduates will not suffer any decline in their career earnings relative to older graduates (This latter assumption, again, is simply a methodological axiom the authors adopt, rather than a conclusion supported by any data).

(2) Recent law graduates have in fact suffered a sharp decline in their earnings at the beginning of their careers, relative to the initial career earnings of older law graduates.

(3) Law schools continue to graduate two JD holders for every available legal job.

So law students are paying vastly higher prices to get much-lower paying jobs, assuming they get jobs at all (19% of the class of 2012 did not have reported employment of any kind nine months after graduation, and only slightly more than half the class has a legal job, loosely defined).

In response to these grim facts, Simkovic and McIntyre enhance their data with the methodological magic of synthetic work-life earnings, thereby suggesting strongly that, back in the day, law school was quite a bargain.

But the problem with back in the day is that it was back in the day.

. . . Further thought: S&M can concede their study shows the absolute value of a law degree has been declining over the entire time period they study, yet still argue that the relative value of the degree (relative to stopping school after undergrad) remains steady, because the value of an undergrad degree continues to deteriorate at a similar pace. There are two problems with this response: (1) It highlights that, when calculating opportunity cost, the paper doesn’t take into account postgraduate educational opportunities other than law school; and (2) If the cost of a degree continues to rise and the return from it remains steady, at some point the value of that degree versus no degree at all becomes negative. In other words, if the NPV of the average college degree becomes negative relative to not going to college (we may be approaching that point with many college degrees), pointing out that a law degree is more valuable than something that has negative value becomes an increasingly weak argument. Extrapolation is always dangerous, but if one doesn’t have to extrapolate the current trends in cost/benefit ratios very far before both higher education in general and law school in particular become indefensible investments.

Of course, this is accurate as stated. It doesn’t take that much creativity and wishful thinking to find it easy to list reasons that what we wish to happen will. The decision to take seriously ‘easiness of listing reasons’ as a heuristic for accurate projections, however, seems problematic.

Some (unimpressive) reasons occasionally offered: (1) The population is increasing, and those additional people will need lawyers; and (2) the world is getting increasingly complex, and additional laws/regulations are being enacted/promulgated, all of which will require more lawyers to figure out.

Problem with #1: Most of those people can’t afford lawyers, at least they can’t afford to pay lawyers what lawyers need to make to pay off their law school debt and live a reasonable middle-class life, much less the “upper middle class” life that is claimed by people making $200K per year (note the applied snark, except for the 3-4 metropolitan areas where that might be fair).

Problem with #2: Greater complexity does not require proportionately more lawyers. Good lawyers deal with greater complexity by learning the additional complexities of a particular legal field (and billing some more hours to do so), not by turning away business related to a law with which they are currently unfamiliar. So, sure, perhaps 1% more lawyers are needed as fields get vastly more complex, but not 25% or 50%. Also, regardless of the complexities, see #1.

I realize that I am lucky to be a few years away from retiring, and, so, do not have to worry about my teaching job disappearing. But, as a mere Ph.D. paid considerably less than even the most-crappy law school profs, I find the grotesque indifference to their students appalling.

I actively discourage students from going to grad school in philosophy. I tell them that (a) if they just want more time studying phil with others, and (b) have no expectations of a job in phil, and (c) do NOT incur any debt… then, fine, do it with the recognition that this will cost you several years of career/earning possibilities.

The authors have already responded to this concern about “the future will be different” -http://leiterlawschool.typepad.com/leiter/2013/07/brian-tamanahas-straw-men-part-4-we-would-have-to-be-off-by-85-percent-for-our-basic-conclusion-to-b.html. In short, it would require extreme and implausible deviations for Campos to be right.

But to step back, there are major problems with law schools, especially the rising tuition – I applaud Campos and others for drawing attention to that.

The problem, though, is that the justified criticism has gradually morphed into the much more extreme claim that law school is a fraud, a scam, etc. And those making these claims get a lot of attention for extreme claims, so they become increasingly invested in an ever-more extreme denunciation, even if the data doesn’t take them that far.

To me, the key question is not so much whether lawyers will make less than they have, but whether the a law degree is better than not having one. THAT’s what the study focuses on, and – at least in terms of economics — law school is still a good investment, even if it’s not as good as maybe it once was.

Of course, there’s more to the world than economics – lawyering ain’t for all types. And we are in the middle of the second worst economic situation of the past 100 years. But still, I think the study brings some balance to this debate. yes, there are some problems – and yes, Campos and others were at the forefront of raising these. And credit to them for that.

But the criticisms have gone way beyond anything the data justifies, and are too often merely ideological commitments to this “scam” idea that has drawn such attention. It’s still a good economic deal for almost everyone who goes.

The study also makes clear that a lot of people with law degrees aren’t lawyers and they do better to as compared to BA degrees only.

That said, I tend to agree with Campos that law school should be for people who want to be lawyers. But the BLS data is an important point, but it doesn’t support the more extreme claims that law school is one giant economic fraud.

“The study also makes clear that a lot of people with law degrees aren’t lawyers and they do better to as compared to BA degrees only.”

i’d be curious to know what fields these non-practicing lawyers are doing better in, vs a BA degree only? I, with only my BS, and a CPA (plus god knows how many hundreds of hours of grad level prof. classes), am probably doing as well, or better, than someone with a BA in history, a JD, and no job requiring a JD. I do know several people who are dual-certified: a CPA and JD. however, they all have BS’s in accounting, to go along with the JD. they tend to do quite well. aside from that, not so much.

The survey makes the assumption that the pool of JDs is of the same standard as the pool of BA only people, except for any effects caused by attending law school. This assumption is absurd, as law schools used to be quite selective, and people demonstrated their ambition and focus on long-term outcomes by applying to them.

No it’s not. I can’t tell you what is happening with “the Ivies” or in Manhattan, but as a UNC Law School grad with 30 years of practice under my belt, I can tell you what is happening in Charlotte, NC. I suspect the same thing is happening in cities throughout the country.

We now have 7 law schools in NC. Way too many. Infilaw’s Charlotte School of Law is graduating 400 suckers, I mean lawyers, a year and wants to graduate 600, most of whom apparently stay in Charlotte. CSL “teaches the test” (Bar Exam), so most graduates obtain a license. But they come out poorly trained, unmentored, unprepared, drowning in debt, and unemployed. There are no jobs for them, so they hang out a shingle from their apartments and starve. Look in our Bar Legal Directory and all you see are a bunch of PO Box addresses and cell phone numbers.

They don’t even understand the basics (how to dress in court, how to address the court, show up on time, etc.) and are a major headache for the courts, which have to slow down to accomodate their incompetence. They do manage to pick off a client here and there, which multiplied by X a year strains demand for existing firms, and serves the client and the courts poorly.

The oversupply of lawyers, caused by an ABA that has been co-opted by the for-profit community, and by law schools with no regard whatsoever for the profession they ostensibly serve, is destroying the small law firm business model (at least). It is a disaster. The good news is I can mentor these new “lawyers” as I stand next to them in the unemployment line.

you sound like you’re roughly in my age bracket (55-60), and probably graduated from under-grad around the same time (78). had I gone on to law school then, and gotten my CPA as well, i’d have ended up doing corporate/tax law (which, and I make no apologies, I find very intellectually challenging), I kick myself for not having done so then, or even in the early 90’s, when next it crossed my mind. now, if I were to go back to school, i’d get a masters in computer science, my next geek love.

“The authors have already responded to this concern about “the future will be different” -http://leiterlawschool.typepad.com/leiter/2013/07/brian-tamanahas-straw-men-part-4-we-would-have-to-be-off-by-85-percent-for-our-basic-conclusion-to-b.html. In short, it would require extreme and implausible deviations for Campos to be right.”

First, there are already a couple of extreme deviations already in the data, which the original authors ignored.

As mentioned in the original post up top: “What data they do have really show is that the earnings premium has been basically flat between 1996 and 2011,…”

That’s fifteen years, and more than a complete economic cycle. Going into a (network dependent) business in which established people have flat earnings is a good idea.

Second, as Paul mentioned above:
“Median salary for 2002 graduates (53% of all graduates had a reported salary): $73,383

Median salary for 2012 graduates (44.7% of all graduates had a reported salary: $61,250”

That’s a 16% decline over the past decade, not counting the decrease in reported salary percentages. And the 2002 graduates graduated into an immediate post-recession environment combined with post-9/11 uncertainty.

And the authors never grapple with the BLS projections, which even if off by a bit, are still bad news for lawyers.

“The problem, though, is that the justified criticism has gradually morphed into the much more extreme claim that law school is a fraud, a scam, etc. And those making these claims get a lot of attention for extreme claims, so they become increasingly invested in an ever-more extreme denunciation, even if the data doesn’t take them that far.”

Perhaps you should actually do your homework – read ‘Inside the Law School Scam’, and you’ll find lots of justification for extreme claims. And then go read the other ‘scamblogs’.

Once upon a time, schools reported an “employment rate” and a “median starting salary” for its graduates to U.S. News. The prospective law students of this country accepted these figures with total credulity, because these were institutions of higher learning staffed by lawyers subject to an ethical code of conduct, and a nationally read magazine subject to embarrassment or civil action if it printed something false. If you read them together with the cost of tuition, you might reasonably assume that most law graduates found something to do in law, and were well compensated for their time – and that the median graduate could probably expect to make somewhere near the median starting salary.

Turns out, all of that was bullshit. Graduates could be counted as “employed” while working at Starbucks for purposes of an employment survey nine months after graduating. If a salary line was left blank, an individual processing these for the school could choose to fill it in with a “reasonable” guess at a market salary if they felt comfortable with that (e.g., BigLaw firms paying known market rates), or leave it out if they didn’t (e.g., the assistant manager track at Starbucks). The schools – who were in a position to know better – allowed their students to matriculate as if there were no bimodal salary distribution and no rampant underemployment during the salad years of the late ’90s through 2008. It turned into a scam in 2008 when suddenly everyone realized that these stories were wildly inconsistent with the reported past performance of these schools. To the extent that law schools still peddle this crap, it *is* a scam.

This “survey” is simply more of the same. Simkovic and McIntyre hand-wave the problem of using 1,382 law graduates (and only 500-odd JDs working outside of law) to represent the outcomes of 400,000+ because this survey is the work of people at the Census Bureau who “care a great deal” about removing bias and distortion from their sample. If you took an equivalent percentage of students from my school’s graduating classes over the last five years, you’d have three or four students. If you sampled them on one of our law school reunion days, you would probably get three or four people who all were on law review and all were hired by firms of 250 attorneys or more – and you would entirely miss the 40% or more who weren’t employed as attorneys (or maybe anything else) within nine months of graduating.

For law school to cease to be a value-creating investment for the majority of law students, the present value of the lifetime earnings premium would have to fall to below $90,000—a drop of 85 percent.

So let’s say we look at this from a finance perspective. What are the odds that the study is off by 85%? What are the odds the study is off by 75%? No self-respecting analyst would just leave it at “oh, unless our prediction is off by a lot we’re good.” No, the correct answer is “how likely is it that we’re off, and by how much?” There’s even fancy statistical terms for (stuff like standard deviations and so on.)

This is more complicated because I think we can all agree that the law school “premium” is very unlikely to be HIGHER than the study predicts. Does anyone think a law school graduate is likely to see MORE than an extra $30-40k a year over a similar non-JD? If so, please buy my bridge near Brooklyn.

So what are the chances that the study is off by something like 85%? We can be pretty sure that for the top 5-10% of graduates their law career is very likely to be similar to that tracked by the
study. Big and mid-size firms are shaky, but are likely to pay out a lot of money for the foreseeable future.

What about the other 90%? We can be pretty damn sure that the bottom 20-30% are incredibly likely to get NOTHING. No jobs exist for them. Whatever non-legal jobs were aided by a JD very likely will will go to more qualified people with JDs – just like in the past when this group didn’t exist.

And the middle 60-70%? We know they’re going to do worse than before because we know that the market is worse. This isn’t speculation – billing rates are going down, dramatically. Government attorneys are making relatively less money (the DOJ hasn’t given a COLA in forever, for example – $150k in 2013 is not as awesome as $150k in 2009).

I’d say it’s pretty likely that the study is off by something like 60-80%. The authors don’t even try to address this. They have literally no reason to think the market is anything like the 1996-2006 period.

I don’t think it takes “extreme and implausible deviations” to formulate the fact that if you include all debt plus interest for attaining a law degree results in an answer that a JD currently gets you to a median neutral economic benefit, given all their other assumptions as true.

I think the emotions involved with the critiques that you can’t relate to must come from a position of relative material comfort on your part (that’s a guess, obviously). It’s hard not to get a little rabid when you’re making 40k with these loans hanging over your head, and you’re constantly reminded of the folks that are living so well off your indebtedness. Especially when the justifications for their good living have no basis in rational economics. Higher ed gets richer, students get poorer, and academics and administration muddy the waters with complicated nonsense. It’s frustrating. And feels ‘scammy’ when the status quo continues in the face of such clear outcomes.

Totally fair concern – but couldn’t it also just be that the economy sucks? There’s a lot of anger and struggling across the spectrum. What I find troubling about the scamblog critique is that it ideologically channels this anger toward a scapegoat (which, historically, is a fairly common tactic during economic hard times – see also immigration reform fights).

Again – don’t get me wrong. There are legit concerns about law schools – and something needs to be done about the costs. But the idea that it’s one giant fraud simply ignores both the data and the broader economic downturn we’re in. If unemployment got down to 4%, I think the entire debate would melt away.

The very limited amount of data (deliberately limited by the law schools and their collaborators) demonstrates that for many students going to law school is a disaster.

It isn’t the existence of three year law schools that is the problem (though they probably shouldn’t exist, other countries do fine without them) is the oversupply. If the number of JDs was 100-110% of the number of available jobs young JDs would be doing fine, however inappropriate the law school curriculam might be.

There is no evidence that the 20,000+ surplus new JDs benefit from law school. Both reason and anecdote suggest that they do not, and the law schools have no statistics to counter those arguments. The claim that the surplus JDs benefit is just a supposition based on self-interested wishful thinking.

And the kicker is that there is statistical evidence that life is getting worse over time even for new JDs who do find a job.

So… do they actually list all the reasons that the value of a law degree might increase? Are they assuming some sort of lawyer specific plague that will help correct the ratio between graduates and job openings?

In short, it would require extreme and implausible deviations for Campos to be right.

I work in the finance industry, that sort of crapola is pure sales pitch. Hell, at least in finance we’re legally obligated to tell people that it’s hard to make predictions, especially about the future.*

You can’t just subtract $50,000 from their lifetime earnings and call their loans paid off. Unfortunately, most people don’t have that kind of cash laying around when they graduate. They’re all going to be paying interest on a rather massive bill and if they’re not employed making six figures that bill is going to be around for a VERY long time.

But since they’re not taking into account tuition, they’re not taking into account monthly loan payments, and they’re not comparing those with the annual incomes early in a career, so they’re doing nothing to look at how long students can’t pay their monthly bills? They’re just looking at it over a lifetime?

Right. As to the inability of recent law graduates to service their loans, given contracting job opportunities and skyrocketing debt, they cite Income Based Repayment. As to why the federal government should be subsidizing the overproduction of JDs at both the front end via unlimited loans and at the back end via quasi-bankruptcy/soft default . . .

That’s actually the easy bit, relatively speaking. You can just deduct the payments from each year’s salary and then NPV what’s left, or something similar. Figuring out the value of cash is pretty easy. What’s the problem is the assumptions that are going into their valuation. Plus the fact that the bad outcome is basically falling into a pit of total suck.

“That’s actually the easy bit, relatively speaking. You can just deduct the payments from each year’s salary and then NPV what’s left, or something similar. Figuring out the value of cash is pretty easy. What’s the problem is the assumptions that are going into their valuation. Plus the fact that the bad outcome is basically falling into a pit of total suck.”

The trick is that they didn’t know what the people in the survey paid for law school. We, on the other hand, know that it was vastly less than what current and future grads pay.

“higher compliance costs or more litigation driven
by new healthcare laws86 or by The Dodd-Frank Wall Street Reform and Consumer Protection Act or the Consumer Financial Protection Bureau;87 electronic communications and discovery making plaintiffs’ work easier and driving more lawsuits;88 increased spending on lobbying and politics;89growing inequality and higher pay for corporate executives;90 renewed interest in regulation in the wake of the financial crisis or the BP oil spill or the shale gas boom.”

“Not sure how they link growing inequality with increased opportunity for billable hours.”

It’s been pointed out that the percentage of GDP going to legal services has been declining. Increased inequality might just as well lead to a softening of demand for legal services; the poor can’t afford them, the rich don’t need them as much because they have power.

And the increased inequality *has been* correlated with that declining percentage of GDP, so the authors are quoting something which goes against their hypothesis.

higher compliance costs or more litigation driven
by new healthcare laws

My wife is an ERISA/Benefits attorney. Oddly, she’s practiced since 1995 – exactly the period we’re looking at. I can tell you that the ACA has not increased her workload AT ALL. Before ACA it was something else, and before that something else it was . . . something else. Governments continually change these laws and they’re continually updated.

Worse, after 3-4 years the compliance costs kind of go away because the experienced lawyers have their crap down and can make minor modifications to past advice.

electronic communications and discovery making plaintiffs’ work easier and driving more lawsuits

Why do these guys ignore “making plaintiffs’ work easier” bit here?

More lawsuits may be filed, but they actually employ FEWER attorneys. That’s the point of E-discovery. It’s really easy to download electronic files of emails, data and documents and just do searches for stuff. Remember Clueless, where a dozen attorneys were reviewing documents and marking specific words? You used to need to manually review documents and depo people to get stuff; now you just download files to a search engine.

I’m not even going to address that this doesn’t mean more lawsuits are “filed.” Lawsuits are filed based on expected returns to the lawyer; a $50k claim is still a $50k claim and nobody can afford to take on that case.

growing inequality and higher pay for corporate executives

I don’t know where they’re going here. The personal services practices have been bottoming out for decades. The number of rich people hasn’t been increasing – they’re just getting richer. You used to rep a CEO making $50M; now you rep a CEO making $500M. It’s not like they suddenly employ 10 times as many people to draft their will.

This is just sad. It’s like these guys don’t know what lawyers actually do.

I’ve come to the conclusion that most law faculty lack the practical judgment of the practicing bar and the altruism and introspection of other academics.

S&M’s study so glaringly departs from the current experience of post-2000 law grads, that one wonders how they could not have rejected their model.

It would be akin to studying historical weather patters, temperature measurements, calendars, moon phases, barometer data, and relative humidity, and then pronouncing that it cannot be raining — despite standing in a storm.

It would be akin to studying historical weather patters, temperature measurements, calendars, moon phases, barometer data, and relative humidity, and then pronouncing that it cannot be raining — despite standing in a storm.